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The Types of Business Entities

Introduction

Various forms of businesses have been structured to accommodate the different types of investors, ranging from individuals to partnerships as well as corporations. These businesses have one similarity of providing goods and services to consumers. However, they differ in their structures, ownership, rights, size as well as the number of individuals that own them. They include sole proprietorship, partnership, and corporations, among others. Businesses are important in providing the necessary goods and services required by different customers. This is mainly because each business serves a given set of customers. For instance, manufacturers only sell to resellers and not final consumers. This paper will explore the types of business entities, and scenarios under which an individual or organization would pick on one instead of the other (The Money Alert, 2011, p. 1).

Business

A business is defined as any entity or organization that provides services, goods, or even both to consumers. This enables the provision of these goods and services as required by consumers. There are various forms of businesses, among these include the three main types, sole proprietorship, partnership as well as corporations (Cross & Miller, 2008, p. 5).

Types of Businesses

The types of businesses mainly chosen by organizations include those named above, sole proprietorship, partnership, and company (Cross & Miller, 2008, p. 5).

Sole proprietorship

These are business entities owned by one individual. The individual does all the duties that pertain to the business. The also individual owns all assets and takes responsibility for all liabilities in the business (Cross & Miller, 2008, p. 5).

Advantages

It is the easiest to start since it requires less capital, the owners are in complete control of their businesses, and they also take all the profit.

Disadvantages

The sole proprietorship has some limits such as unlimited liabilities, which puts the owner’s personal properties at risk, in addition, losses are responsibilities of the owner and usually work for low-caliber employees only.

Partnership

A partnership is a type of business in which more than one individual agrees to own a business. Just as a sole proprietorship, the owners and their business are one as recognized by law. Profits and losses are shared, decision-making is slower compared to sole proprietorship, and an agreement must be put in place to utilize during dissolution or in solving of disputes (Cross & Miller, 2008, p. 5).

Advantages

Losses are shared in partnerships which lower the risks of personal properties; profits are reflected in partners’ tax returns. Raising funds is relatively easy as compared to a sole proprietorship.

Disadvantages

The actions of one partner may cause risks to other partners as they are both individually and jointly liable. Making decisions is slower than in sole proprietorship. Moreover, profits are shared.

Company

Companies, also referred to as corporations are chartered by the states and considered separate entities from their owners. They are allowed to enter into contractual agreements and may be sued or taxed as well. They are owned by shareholders, who elect board to supervise main decisions and policies. They involve several processes to start and require more capital (Cross & Miller, 2008, p. 5).

Advantages

Its shareholders are separate entities from the business and therefore have limited liabilities. Funds can easily be raised in companies through the sale of shares, and the business does not have to be dissolved when a shareholder leaves.

Disadvantages

This form of business requires a large amount of capital to start and takes a longer period than the others. Taxation is doubled since the dividend is not subtracted from the income of the corporation.

Conclusion

Businesses are important in providing the necessary goods and services to consumers. The various types of businesses are essential in supplying the needs of each category of consumers. The types of businesses also allow various kinds of investors to decide on which kind of businesses to invest in depending on the number of investments they have (The Money Alert, 2011, p. 1).

Reference List

Cross, F.B., & Miller, R.L. (2008). The legal environment of business: Text and cases – ethical, regulatory, global, and e-commerce issues. (7th ed.). West: Cincinnati.

The Money Alert. (2011). Business Types of Ownership. TheMoneyAlert.com. Web.